(Bloomberg) — Deutsche Bank AG’s fixed-income traders are on track to match or beat the performance of their Wall Street peers, racking up a fourth straight quarter of gains as the lender takes advantage of a year-long market rally.
Third-quarter trading revenue is “in line with or better” than the guidance for 12% growth that Wall Street peers had given on average, investor relations head James Rivett said on a recent call with analysts, according to a transcript published Monday. That performance excludes the impact from debt valuation adjustments and Tradeweb, which reduced revenue in the third quarter of last year by 99 million euros ($116 million).
The trading performance over the past year has lifted Deutsche Bank’s shares and alleviated concerns the business may be too damaged after years of piecemeal cuts under the predecessors of Chief Executive Officer Christian Sewing. The bank last year unveiled its biggest restructuring in two decades, exiting equities trading and refocusing the larger fixed-income operation. Sewing, a former corporate banker, had initially planned more aggressive cuts to debt trading but reversed course when it became clear that negative interest rates would weigh on the bank’s other businesses for longer.
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“We have consistently said that we can see positive momentum building in our core investment banking client franchises as our refocused strategy begins to pay off,” Rivett said.
Sewing’s turnaround has been helped by a trading boom that started late last year and intensified in the market volatility caused by the pandemic. JPMorgan Chase & Co. said last month it expects trading revenue to jump 20% in the third quarter while Bank of America Corp. predicted an increase of 5% to 10%.
The trading windfall has allowed Sewing to maintain his revenue targets even as other units failed to grow as quickly as anticipated. Deutsche Bank recently reaffirmed its goal, citing higher-than-expected revenue growth in its investment bank as a key reason. Two other core divisions — the retail and the transaction bank — have been growing more slowly than stated in Sewing’s plan.
Deutsche Bank’s shares have gained about 12% over the past year, following a decline in the stock that lasted more than a decade. That slump left the lender with few options to acquire rivals as consolidation in European banking is expected to accelerate in the wake of the pandemic.
Deutsche Bank’s current restructuring will “put us in a better position” to pursue large-scale takeovers or mergers, Sewing said last month, while ruling out large deals before the transformation is over. He also said smaller deals to complement individual units could already happen now.
“The investment bank has driven a robust start, with the environment helping,” Bloomberg Intelligence analyst Alison Williams wrote in a note Monday. “Sustained momentum in core businesses will be the critical measure.”
Sewing wants to increase revenue to 24.5 billion euros in 2022. Analysts so far are skeptical, with the consensus forecast compiled by Bloomberg anticipating revenue of 22.3 billion euros.
(Adds details on M&A plans in seventh and eighth paragraph)
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